Entrepreneurs don’t have a gene for risk–they come from families with money
qz.com
qz.com
- Finance: As per article family financial support can get people over one of the biggest hurdles of getting a business off the ground. Also coming from an upper income family odds are you have a higher income and more savings to invest/risk.
- People they grew up around: If you grow up around people owning/running companies you are more likely to see this as a reality for yourself. You also have personalities to emulate in chasing this goal.
- History of tech: Wealthier families has more access to tech in the past, although changing today. In my school age most kids didn't have access to their own computer, even at uni. This would be a barrier to leaning about IT that could build future behavior.
- Connections: Growing up in a privileged environment you develop connections that can be useful. Also learn how to behave among people who are in a position of power to help you and develop the 'we are similar people' bond.
- Sense of Entitlement: A great line from Rory Sutherlands TED talk was Oxford/Cambridge doesn't buy you a great education, it buys you a great sense of entitlement. This give you confidence to go achieve great things. In my small world I have clearly seen this difference from people who grew up on different side of the tracks though it seems to be changing a bit now.
- Expectations: People growing up in a more privileged world have higher expectations placed on them. To a degree this can push people to try harder to build something significant rather than just reach a reasonable level of comfort a more general job will offer.
- Fallback Option: I imagine this is one of the more important, people from a comfortable family know if their venture goes south they wont be homeless. Their family/friends will make sure they have board, food and an ability to restart. This puts them in a position to risk all with out the same downside.
In my case, I've moved from Germany to Australia without many prospects and still managed to land on my feet. Friends with less money always asked me "aren't you scared?", after a while the realization hit me - I wasn't particularly scared because if things wouldn't have worked out, I could've just used my parents' credit card for a $2000 flight back, no need to worry. My "poorer" friends don't have that option so they're naturally scared of something I didn't even consider, an "unknown unknown" for me.
- Sense of Entitlement: I thing your studies can give you that (mine have)... That's something the society has given to some, not to all. There's room for improvement. - Expectations: as long as our society is a 9to5-job-society, you can't expect much more... Here again, there's room for improvement.
"Just put shame on successful entrepreneurs for having no merit because of their (supposed) wealth." That's what I felt when reading the article (and I'm by no means rich).
I think pretending you have to be rich to be an entrepreneur is extremely counter-productive, and that's what the article does (a socialist penchant also found at http://qz.com/author/agrothqz/) instead of looking at ways to make the situation better. If I judge my own country (France, which I left), I'd say this is the nation-wide mindset, and its harming entrepreneurship like mad.
The "fallback option" is the real killer. It's hard for some people to imagine, but there are people out in the world without any family to rely on, or in some cases, any family at all - and not everyone has friends they can rely on, either. This affects not just business creation, but things like schooling (the need to support yourself with no free place to live is more stressful and difficult than it may seem.)
Until one hasn't had it, one may not realize what an absolutely incredible advantage it is.
The Boston chapter had over 100 people in it, maybe closer to 250? Of those, almost none had 'top tier' degrees. Almost none had business school degrees. In fact, for a community of fairly wealthy Bostonians, it was notable how few had come through top-tier schools or advanced degree programs of any sort.
Startup entrepreneurs might be different, and I've only read the article about the paper, but I just don't see this in my own entrepreneurial experience; most entrepreneurs I have known outside of Silicon Valley were motivated hard working types; some were visionaries, some were operations geniuses, some accidentally bought out their partners or bosses and got left with a business, most were from blue collar or middle class families.
Put another way, Thurston Howell doesn't start a summer painting business staffed by college students, or a recruiting business which demands 90 hour weeks for the first ten years of life; instead Frank from Gloucester does because he can't stomach the thought of working for someone else for the next 40 years.
Another thing I've observed as a (soon to be former, thank f##king god) MA resident and which has not contradicted what I've observed in VT, NH ME as well as other parts of the Boston/NYC/DC urban+suburban area is that the blue collar business owners (and to a much lesser extent, their employees) directly benefit from serving a wealthy area. Wealthy people hire landscapers, plumbers and mechanics much more readily than less wealthy. The owners of businesses that serve them milk it for every penny of profit (and rightly so).
Don't believe me? Look at the trucks they drive and equipment they use. If it's all on it's last legs then times are tough. With all the people with the money to pay professionals for services times are anything but tough in most of MA
Anyway, my point is that if one plays their cards right, they can do very well (comparable to white collar professionals outside of tech/engineering/financial) by owning a small business. Desire to be an entrepreneur has nothing to do with it, for someone who isn't wealthy in a wealthy area more possible situations where the risk/reward makes owning/starting a business a great strategic decision.
Doing a 'startup' is a different thing entirely, and has a far more bimodal outcome curve than what you or I describe.
I think language is helpful, especially because younger HN readers may not know to distinguish the two, and think that advice or statistics about entrepreneurs applies to them when they are aiming at a fast-growth startup.
No, pop mags like Quartz do. Some entrepreneurs go to trade school and are electricians, deli owners and carpenters. Something like 7%[0] of Americans are self-employed, difficult to believe that many people come from massive wealth.
[0]http://www.careerbuilder.com/share/aboutus/pressreleasesdeta...
The 1870 - 1920 industrial revolution era of the US disproves this 'entrepreneurs come from families with money' premise. Most people starting businesses at that time came from relative poverty. That includes JD Rockefeller.
China's boom of the last 30 years also disproves the family money premise. The radical majority of their millions of entrepreneurs over that time did not come from families with money.
I guess you can call that smart. But it is also dishonest. They are effectively stealing from their employer. Many people seem fine with that, justifying it with the notion that their employer doesn't adquately utilize their skills, or is stupid to trust them so deserves to be taken advantage of, or didn't know how valuable their IP was so it was ok to take it and start a company around it.
I've known quite a few people who did this, even a couple who went on to found billion dollar companies while on the payroll and using company resources.
It's a different story if the boss says spend your free work time doing whatever you want, or develop some skills of your own choosing. In my experience that's usually not the case.
It's expected that the employer is going to fuck over the employee when it's convenient (you're naive to think otherwise).
You're putting yourself in an unfair (one-sided) position by deciding that you have to behave nicely towards the company.
I think most people who have worked for a number of employers find a range of relationships. Some will take advantage, some will nurture, and with some you are sort of neglected.
Regardless, if what you say is true then as an employee your choices are to be honest and taken advantage of, or dishonest and taking advantage. Maybe there are more options, including some that don't involve being dishonest?
Also, the relationship has at leaast 3 parties: employer, employee, boss.
The employer doesn't know or care about individual employees, but may have a disposition towards or against bulk layoffs in various circumstances.
The boss does know the individual employee, and may personally like or dislike them (in addition to having some impression of their performance level).
The employee just needs to not piss off the boss, and not appear as deadweight (and optionally, impress the boss enough for protection from semi-discretionary layoffs).
Employers will not fuck over employees "just because". They're mostly rational enough to be predictable.
The article doesn't even begin to support it's claim that family with money is necessary - at most, it seems one needs a frugal lifestyle and a middle class job.
I used "software engineer" as an example because it applies to most of us on HN, that's all.
That's a huge difference in terms of willingness to assume risk. Let's take two people who have each worked seven years saving $30K/year before spending $30K on a business that takes two years to fail. The software engineer could devote themselves full time and still come out with $180K (not counting interest) in their retirement account. The median-income earner can devote only spare time because $30K isn't even enough to live on for two years, and at the end his retirement account is wiped out. One risk is a trivial one that most people would accept. The other is a yawning chasm. As the authors said, willingness to risk that much is strongly correlated with already being pretty wealthy.
There's only one word to describe the idea that risking $30K is no big deal. That word is "privilege" and you should check it.
Also, $30k is easily enough to live on for 2 years, provided you are willing to reduce consumption. Among other things, there are lots of folks consumption below $15k/year (e.g., college students if you ignore the cost of college, some illegal immigrants in regions where they don't get welfare).
Most people simply aren't willing to reduce consumption to college student levels, but that's a matter of willingness rather than ability.
That's the key. Willingness to risk that money increases with the time it took to save it, and not just linearly. When the time increases by almost an order of magnitude, you're going to find darn few willing to risk it.
> that's a matter of willingness rather than ability
It doesn't matter why; the fact stands. Entrepreneurs are far more likely to come from the first and second quintiles than the more populous third through fifth. Sure, people in some parts of the country could live on $30K if they're willing to make severe sacrifices in their quality of life, but treating that as just a matter of slight degree compared to a software engineer who can still live as they please while making the same attempt seems a bit callous. At a certain level of sacrifice it's a qualitative difference between "crazy if you do" and "crazy if you don't".
Also if living like a college student is considered to be "severe sacrifices", does this mean that upper class kids who go to college understand and experience poverty and deprivation? And therefore, when discussing it, they don't need to "check their privilege" and can simply think back to college?
Now, at 50, I could imagine living like they did for a while and even think I might enjoy it, but only because I know I could leave whenever I wanted and go back to living in a nice house etc. I'm in a privileged position now, but at least I'm aware of it. I know it will be far far easier for my daughter to take those kinds of risks than it was for me. Just because it's possible for someone below median income to start a business doesn't mean they'll do so at the same rate as people who are richer. That's the point that you originally said made no sense, no matter how you've changed your position since.
The article does also discuss a correlation between people being white, male and highly educated. I don't dispute this correlation. This correlation does not imply that family money is even useful in starting a business; most people who are white, male and educated have no family money.
If you simply want to claim that there is a correlation between being unwilling to live like a college student and not being wealthy, go for it. All you are suggesting is that wealthy people are more willing to deal with adversity in the pursuit of goals than others.
Say you worked a 9-5 for two years saving up $30k. You reach the end of two years and youre going to quit your job, losing all of your income, and then also spend 100% of your savings right away on beginning some new business that could fail at any point?
You are thinking from the perspective of someone from wealth, missing the realities that would be faced by someone actually considering starting a business without a history of even middle class wealth.
Most businesses are not the kind you can start on your off time, as a side project. You cannot keep your salary, you have no investment income, or passive income of any kind.
What happens when you fail? you've spent every last cent of your savings, you have no job, you have a sizeable gap in your resume, and going back to your old career means youll have to take a pay cut compared to what you were making before you left to start the business.
This is a real fear that keeps many people from going out on their own.
If you are from wealth on the other hand, having no savings might not be as big of a deal. You wont become homeless if you have family and friends that have the means to take you in. You wont go hungry, you can even take a few weeks to reevaluate your decisions and decide if you want to start another business with your lessons learned, or if you should return to the job market and get yourself back on your feet.
That's quite a feat, given that I'm not from wealth at all. I've probably got more money than anyone else in my family and I've earned it mainly from salaried employment and personal investments.
The opportunity costs you've described apply equally well to someone who came from wealth - resume gap, time spent not working, no job, etc.
I'm not disputing that startup capital from family would be helpful. I'm disputing the article's implication that the amounts of capital needed are unavailable to regular people, or that only people from wealth can start a business.
If investment income is a relevant part of your income stream, then congratulations - you are among the wealthiest and most financially literate of all americans.
You are now someone who speaks from a position of wealth because of this.
>opportunity costs you've described apply equally well to someone who came from wealth
Oh really?
Because when youre poor and your parents live in a one bedroom apartment and cant afford food for an extra person, maybe youve even been sending them money because they have problems keeping up with their bills and being able to eat everyday.
Thats the same as a stanford grad, whose parents live nearby in a 4 bedroom plus house, can easily afford to send their children money when they need it, let alone allowing them to move back home with free room and board at any time.
If you honestly dont see a difference, from the perspective of starting a business, between these two people, then we have nothing further to discuss.
> or that only people from wealth can start a business.
I have yet to see the article or a single commenter make this claim.
The simplest example is a landlord having a running businesses in his basements instead of just collecting a rent. These businesses could be seasonal, habit/passion-driven, barely profitable, etc.
Btw, a rich family doesn't mean lots-of-money-in-the-bank, it usually means many diversified sources of income.
And of course, families that are relatively well off and don't have to worry about basic needs can afford to teach their children that, while poor parents will most likely teach them to be frugal and that having a safe job and not taking big risks is of upmost importance (or not teach them anything - children will notice anyway).
I'm afraid that doesn't make sense.
Still, I would like to know how many of this "self made" millionaires are not white, men, and don't come from a, let's say top 15% tier, wealthy family.
The book is going for $2.48 on Amazon. Anyone can afford it. Why not give it a try before dismissing it?
As of 1980 - most of those millionaires were born well before that date - the US was nearly 80% white.
https://www.harrisonmetal.com/
&&
http://blakemasters.com/post/24578683805/peter-thiels-cs183-...
I think the smartest path for people without financial capital is to spend a decade getting industry experience and getting to know people in whatever field they aspire to disrupt.
The majority of Americans fall into the same (or better) economic category as those people.
Sergey Brin and Larry Page were PhD students at Stanford...
Marc Cuban was middle class... in an affluent neighborhood known for the quality of its school district. And the dude was a beast of an intellect and was pushed by his family to be entrepreneurial from age 12. Koum got extremely lucky in being in the right place at the right time in what was essentially the app store lottery, not to mention that he seems like an incredibly bright guy.
Honestly, your arguments are not helping. All these people, aside from being white, working on tech and being extremely talented, were in the right place at the right time. I don't doubt that they would have been succesful in other fields since the common theme is that they're also incredibly smart.
But from all these examples I just can't help thinking that if these guys had decided to, for example, go into medicine, civil engineering, or other traditional paths, or if they had been of a different gender things would have been different.
Also, dude, what part of being a PhD student at Stanford doesn't scream a tremendous amount of privilege? Wealth and class are not just a question of the amount of money in the bank, but also being raised in families from highly educated backgrounds, a culture of hard work, a selection of professions that promote entrepreneurial and technical values, the sheer luck of having chosen a field that's expanded exponentially, and also not having to deal with shit like, say, malnutrition, which is a not uncommon theme in the US, where a significant child population lives on food deserts.
Rest assured, I really, really think that if Brin and Page had been to any other university with a not-so-stellar track record of professors being intimately involved in Silicon Valley corporations, they would have been "merely" very good researchers. There's a ton of people who have the skills to study in Stanford, yet for monetary issues, difficult childhoods, and the plain fact that a lot kids have no idea what CS education is about, they never get the chance to be exposed to the people, and most importantly, the money there.
Grad school is often fully paid for, particularly in STEM fields, because it's like indentured servitude. Undergrad at a fancy US school is much harder financially, but you can still go for free if you're on an elite scholarship and poor. So, go to a cheap undergrad / master's somewhere and then transfer to Stanford for the PhD, if that's what you want and are capable of doing.
Is one privileged to have the opportunity to attend grad school at Stanford? Yes, but that doesn't make it categorically unfair.
I've had TAs go to high schools for very affluent children of a developed country (not a first-world country but there was true wealth here), with a lot of advanced courses in computer science, where 90% of the kids didn't even know that computer science research was actually a thing that existed. Never mind the entire notion of a circle of people who do computer-related entrepreneurship.
* a minuscule portion of the population signs up for the first year of CS * the vast majority drop out because they lack the fundamentals in maths and physics and lack the patience and persistence to learn them * half of the remaining bunch drop out on second and third year where highly technical topics such as metaheuristics and OS internals are introduced, which assume that the student has complete and utter dedication to their studies (which is many times not the case since they have to support themselves financially) * The remaining straggle for a while, most end up going straight to the private sector. Out of the graduates, a third go into the academia gauntlet, where half can expect to not get grants or funding or be forever thrown into shitty unpaid roles
Yes, at some point dropping out is not that big a deal and alternative paths emerge, but the idea of doing a business based on a fundamental piece of research becomes unrealistic too, which is where some of the best opportunities lie.
In the cases I've identified, almost all the people that go into academia, even in this public uni, come from professional families of homeowners who don't have issues supporting their children well into the mid-twenties.
> but also being raised in families from highly educated backgrounds, a culture of hard work, a selection of professions that promote entrepreneurial and technical values, the sheer luck of having chosen a field that's expanded exponentially
None are the result of plain wealth.
But they are a result of class.
You can have people hitting up wealth from very specific opportunities. But the knowledge that comes from being raised from class is how to maintain and further that wealth.
My parents are from the professional middle class, but they never taught me the value of networking, self-promotion, and corporate speak because they never found a use for it. I had to learn it from friends of mine from far more affluent backgrounds, who told me exactly what recruiters look for, what investors look for, how to dress the part and how to talk the part.
That knowledge, concentrated in just two years of meeting these people, has easily made a different of 50% in my income, if not more. And my ceiling is now essentially unlimited because of the access that has given me.
If I hadn't gone to an expensive private school I would have never acquired those social codes which are key to getting funding and interest in the larger public sphere. I am forever grateful for that knowledge, but I'd be naive to say it's something anyone can learn by themselves without prior exposure.
As for how to dress and behave, they are far easier to pick up than what makes anyone intrinsically smart. Yourself included, you did not need to be rich for a little "class" to rub off on you. It's like learning proper English. At places like Harvard, it truly does rub off (often along with the Haaavd-ness or MIT-ness etc etc).
The entrepreneur ventures with a plan to use money in such a way that he will make a profit from his activity. It's simple. It requires an adventurous character, some perceptive understanding of market prices, notions on how to make a profit from productive activity, and the will to act accordingly. The concept was needed because countless people were doing it in the 18th century, under the eyes of those now known as classical economists.
Give me two billionaires I and you will see they don't have much in common except tenacity, willpower and seeing the world as something they can influence.
I don't think you can learn a lot in analyzing successes, because there are so many different paths to success and chance plays a huge part.
Also, IMHO success is more about what you don't do than what you do.
But sure helps write articles which drive traffic.
Doesn't mean anything. Most bombs aren't nuclear bombs, that doesn't mean there are no nuclear bombs. The fact that a handful of billionaires who were in the IT industry during its formative moments and getting a ground floor opportunity doesn't mean lots on entrepreneurs aren't coming from wealthy families.
It's trivially easy to come up with dozens of examples of people that came from average or poor backgrounds and became billionaires in the last 50 years. Soros, Oprah, Spielberg, Harold Simmons, Howard Schultz, George Lucas, Carl Icahn, Do Won Chang, Bob Parsons, Stephen Bisciotti, Henry Samueli, Jan Koum, J.R. Simplot, Kirk Kerkorian, Sergey Brin, Larry Page, Paul Allen, Leon Charney, Mark Cuban, Carl Lindner, Steve Jobs, Larry Ellison, Jeff Bezos, Shahid Khan, George Joseph, Jack Dorsey, Michael Bloomberg, Sheldon Adelson, Phil Knight, Ken Langone, Jack Dangermond, Elon Musk, Ken Langone, Harold Hamm, David Murdock, John Malone, Gordon Moore, Thomas Peterffy, Marc Andreessen, Michael Jordan, Alec Gores, Ralph Lauren, John Paul DeJoria, Kenny Troutt, Alan Gerry, Evan Williams - this list keeps going.
http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a...
"We crunched the data from our most recent Forbes 400 and discovered that more than 94% of the tech billionaires created their fortunes themselves."
40% of those tech billionaires came from a lower class background. In real estate it's nearly 50%.
[2] http://www.forbes.com/sites/afontevecchia/2014/10/06/self-ma...
It's always easy to come up with small numbers of examples that don't fit a rule, that doesn't disprove a rule, especially when the rule is a generalization and not an absolute. However, if the data says it's actually well over half, THAT disproves the rule, and is a much better way of stating the rule is untrue.
What doesn't work is using an example to prove a rule.
That's a lot more stability and safety net than most people have.